Compliance is one of the most crucial aspects of running a company. In India, all companies, irrespective of their categorization as Public, Private, Section 8 Companies, etc. are required to comply with all mandatory requirements such as adherence to various statutes, rules, regulations, etc. Adherence not only means complying with the applicable Companies Act, but also environmental laws, labour laws, industrial laws, etc. Being a strenuous task, it requires great attention to detail as a failure to comply with any of the mandated compliance requirements could result in a penalty being levied on the defaulting Company under the appliacable law. Therefore, it is advisable to keep the annual compliances in check by hiring Company Secretaries and Lawyers who would facilitate the Compliance check.
Private Limited Company
It is a well-known fact that only two members are required to form a private company with a maximum of two hundred members. A private company is mandated by law to add the words “ Pvt. Ltd. ” as the suffix to the name of the Company. It is pertinent to note that a private company can be limited by guarantee, limited by shares, or be an unlimited company.
Section 2 (68) of the Companies Act, 2013 defines Private Company as “a company having a minimum paid-up share capital as may be prescribed, and which by its articles, —
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:
Provided further that —
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company.”
Essential Compliance Checklist for Private Limited Company
(1) Essential Requirements to be complied with right after Incorporation
The following are a few mandatory compliance requirements that need to be completed right after the issuance of Certificate of Incorporation.
(i) It is mandatory for every Private Company to have a Registered Office. This is to ensure that important notices and communication are being received by such a Company. The same needs to be duly verified with the Registrar of Companies (hereinafter referred to as “ROC”). Subsequently, the Company shall ensure that its name has been affixed or displayed at every place it is carrying out its business. Besides that, the Company shall also have a seal with its name engraved on it.
(ii) The Company must appoint an Auditor within thirty days from the date of registration of the company. This is to be done by the Board of Directors (hereinafter referred to as “BOD”) by calling a Board meeting. Where the BOD is unsuccessful in appointing the Auditor, it is the responsibility of the members of the Company to make the said appointment. The members may call an extraordinary meeting to conduct the aforesaid.
(iii) Within thirty days of incorporation, the Company shall hold a Board meeting as discussed above. The Directors of the Company must disclose their interest in any other entity. The Company shall also maintain statutory registers in the prescribed form. Additionally, the Company is bound to diligently maintain its Books of Accounts.
(iv)The Company shall maintain a current account and the subscribers shall deposit the subscription amount in such bank account, pursuant to which the declaration of Commencement of Business needs to be filed with the ROC within One hundred and eighty days of incorporation.
(2) Annual Compliance for Private Limited Company
The following are a few mandatory annual compliance for Private Limited Company that need to be completed yearly in order to avoid penalties under the concerned law:
(i) A company shall ensure that its Annual General Meeting (hereinafter referred to as “AGM”) shall be scheduled on or before 30th September each year. The AGM shall be scheduled to be held at the registered office or in the locality (town, city or village) where such registered office is located. The time period between two subsequent AGMs shall be less than fifteen months. The AGM is to be held by giving a notice of 21 days. The quorum shall consist of at least two members in the case of a private limited company.
(ii) Within sixty days of carrying out the AGM, the company must file its Annual Returns in MGT–7. The Company’s Balance Sheet, Statement of Profit and Loss and its Director Report in AOC–4.
(iii) Each Company is mandated by law to get its Accounts done and have them audited by an authorized person. Along with the audited Financial Statements, the Audit Report shall also be filled with the ROC.
(iv) As seen in subpoint (ii) of point 1 above, the first Auditor is appointed within thirty days. He shall continue till the 1st AGM, post which a new Auditor shall be appointed. This shall be decided in the 1st AGM and the Company shall file ADT–1 in order to acknowledge the said appointment.
(v) A company shall conduct four Board meetings in a year. The duration between two subsequent meetings shall not exceed 120 days.
The Compliance requirements mentioned herein above are a few of the many compliance checklists that needs to be adhered to. Failing to fulfill the compliance requirements could levy heavy penalties, payment of additional fines as each day passes, and additional scrutiny of the Company defaulting to do so. Therefore, non-compliance would not only have grave consequences in the form of levy of hefty fines and penalties but also tarnish the goodwill of the company which may in turn affect the company’s business.
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